A Texas federal court certified a class in an ERISA action brought by participants in one plan, but alleging class claims on behalf of participants in many different plans sponsored by different, unaffiliated employers. See Chavez, et al. v. Plan Benefits Services, Inc., et al., No. AU-17-CA-00659-SS, United States District Court for Western District of Texas (Aug. 30, 2019). This decision expands the liability risk for service providers who serve multiple plans.
In July of 2017, participants in two plans sponsored by Training, Rehabilitation & Development Institute, Inc. (TRDI) sued not TRDI, but three entities that marketed and supported health-and-welfare plans and retirement plans for employers. The defendants, Plan Benefit Services, Inc., Fringe Insurance Benefits, Inc. and Fringe Benefits Group, marketed and serviced plans for companies that obtained government contracts. The plaintiffs’ employer, TRDI, enrolled in two plans: one for health & welfare benefits and another for retirement benefits. The plaintiffs sued under ERISA, alleging the defendants charged excessive fees, primarily because of allegedly undisclosed, indirect compensation the defendants received from third parties as part of the defendants’ recordkeeping, administrative and other functions for the plans.
The amended complaint sought a class that included participants in other plans sponsored by other employers. The claims alleged fiduciary liability, asserting that the defendants controlled disbursements from trusts established for plans and directed the various plans’ trustees with respect to disbursements, including payments for defendants’ fees. The plaintiffs then filed for class certification, and the court found that a class action was appropriate for these types of claims. In particular, despite the fact that many putative class members participated in different plans, as well as the plaintiffs’ claims might involve inquiry into the defendants’ performance and quality of services provided to participants in those other plans, the court found that the defendants did not adequately explain why those differences mattered given the plaintiffs’ class-wide theory of liability. The court also found that the defendants did not identify particular defenses that might apply to some class members and not others, meaning the factual inquiry among all plans was similar enough to allow resolution on a class-wide basis.
The court also rejected the argument that the plaintiffs lacked standing to bring class claims on behalf of participants in other plans. The court held that for purposes of class certification, the plaintiffs only needed to establish that they had standing to bring each claim asserted on behalf of the class; the plaintiffs did not have to actually be participants in every plan involved.
What this Means: Class claims on behalf of participants in unrelated plans, sponsored by unaffiliated entities, usually present hurdles for plaintiffs. For one, it is uncommon for a defendant or group of defendants to be considered fiduciaries of many different plans. ERISA, however, recognizes a “functional fiduciary” status, meaning a person can engage in fiduciary activities without being formally designated as a plan fiduciary. Even then, questions of fee reasonableness typically are fact intensive and involve inquiry into the process involved in evaluating and approving plan fees. Those fact issues usually are plan specific and defeat class certification in actions that challenge fees across many plans. The Chavez case, however, is one to watch as it works past class certification, when the court may have to address theories of liability and fact disputes that involve multiple plans.
